Facilities escape damage from Dean

For all of the initial fears it generated among traders and Gulf Coast residents, Hurricane Dean inflicted apparently little damage to or disruptions of oil and gas operations in the Gulf of Mexico.

It wasn't for want of effort. When Dean hit the Yucatan Peninsula on Aug. 21 with 165 mph winds gusting to 200 mph, it was a rare Category 5 hurricane and the third-most powerful Atlantic hurricane to make landfall since record-keeping began in the 1850s. But as usually happens when hurricanes move across land, Dean weakened to a Category 1 storm before it reached the Bay of Campeche, where Petroleos Mexicanos has 66% of its oil production. Its projected path was through the productive Cantarell oil field, and Pemex evacuated more than 14,000 workers from 140 offshore facilities and shut in production of 2.65 million b/d of oil and 2.63 bcfd of gas.

Further north, the Minerals Management Service reported 24 of 101 drilling rigs and 34 of 834 manned production platforms in the US sector of the Gulf of Mexico were evacuated. Shut-in production topped out Aug. 21 at 43,881 b/d of oil, or 3.4% of total crude production from federal leases in the gulf; and 140 MMcfd1.83% of total gas production. By that date, Shell Oil Co. was already returning workers offshore and bringing shut in production on stream. By Aug. 24, MMS reported only one production platform was still without a crew, while 2,600 b/d of oil and 1.3 MMcfd of gas remained shut in.

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "The precautionary closing of the Mexican fields and ports will cause delays in crude supply to US Gulf refineries, but the system is accustomed to having weather delays in Mexico, and this will not cause a state of emergency, especially when crude stocks in the US Gulf are at multiyear high for this time of the year."

Shell also reduced production rates at the 340,000 b/d Deer Park refinery outside Houston in anticipation of interrupted crude supplies due to Hurricane Dean. "There is the potential for delayed oil shipments due to the weather so we are monitoring the situation to determine its potential impact on our operations," said Shell officials Aug. 22.

US inventoriesEnergy prices fell Aug. 20-21 when it became evident that Hurricane Dean was going to miss the US sector and strike the Mexican sector of the Gulf of Mexico. Prices continued to fall Aug. 22 after the Energy Information Administration reported a surprise build in commercial US crude inventories and a continued decline in gasoline stocks during the week ended Aug. 17. Crude stocks increased 1.9 million bbl to 337.1 million bbl while gasoline inventories dropped 5.7 million bbl to 196.2 million bbl. Distillate fuel inventories increased 1.3 million bbl to 129 million bbl (OGJ Online, Aug. 22, 2007). The new front-month crude contract closed at the lowest price level in 2 months, while natural gas dropped 10% to a 10-month low in anticipation of increased storage.

Jakob said, "With higher than expected crude oil imports and lower than expected gasoline stocks, the US weekly statistics provided two surprises with opposing directional influences. Products cracks have improved, but on crude oil the West Texas Intermediate long-dated time spreads have weakened, and the WTI premium to [North Sea] Brent is weakening on the slight increase in Cushing, Okla., stocks. The natural gas flat price [for the September contract] has now lost 20.4% in 3 days."

Jakob said, "The weekly change [in gasoline stocks was] so large that there could have been an early rush from retailers to fill in before the expected storm in order to not be caught short into the Labor Day weekend. High imports of crude oil (the highest since mid-May) have stopped the crude stock hemorrhage and are maintaining them at multiyear high for the season."

Paul Horsnell at Barclays Capital Inc., London, said, "Despite market fears about demand, US gasoline demand has hit a new all-time record in the latest weekly data. Demand for August as a whole is neck-and-neck with July's all-time monthly record, with gasoline inventories remaining very tight."

On Aug. 23, EIA reported the injection of 23 bcf of natural gas into US underground storage for the week ended Aug. 17, compared with injections of 21 bcf the prior week and 57 bcf during the same period a year ago. US gas storage now exceeds 2.9 tcf, up 77 bcf from last year and 333 bcf more than the 5-year average.